America, Get Ready for "Ringbacks"

June 27, 2004

By Olga Kharif You know those rrring, rrring, rrrring sounds you hear before the friend you've just called picks up her cell phone? Soon, they could be history. Instead, you might dial the number and listen to Britney Spears singing Ooops!... I Did It Again while you wait for your friend to pick up.

Something like that might be your first encounter with a "ringback tone." Already in use in cell-phone-crazy South Korea, Taiwan, and other Asian countries, this new wireless service could be coming to the U.S. soon, perhaps in the next year. Ringback tones promise to give wireless users yet another way to personalize their phones beyond the already wildly popular ringtones, those tunes your phone plays when someone is calling you. In fact, ringbacks may help wireless service providers ring up even more cash than they're making now from ringtones.

That's a pretty sizable market: Last year, ringtone revenues came in at $2.3 billion worldwide, according to telecom consultancy Ovum. And, in the U.S., more people now download ringtones based on popular songs than they download the songs themselves from the Web's many music services, says Scott Hochgesang, vice-president for business development at Universal Music Group, the world's largest music company. "We like ringbacks equally well," he says, foreseeing a new revenue stream for the music industry.

YOUTHFUL PITCH. Indeed, according to Ovum, by 2008 mobile music content -- ringtones, ringbacks, and entire songs that could be wirelessly downloaded onto handsets -- could account for 28% of total music sales, including CDs and paid downloads. (That percentage assumes the overall music market remains constant at around $32 billion worldwide, which is likely given that music buying is actually declining in some countries.) Mobile music accounted for less than 1% last year, figures Dario Betti, a senior analyst at Ovum in London.

Many analysts think ringbacks could hold even more promise than ringtones. While lots of, well, let's just call them older folks may regard a cell phone as a necessary evil, for today's youth, it's a lifeline. And that's the market that holds the most promise of embracing ringbacks, says Adam Zawel of market consultancy Yankee Group in Boston. These cell-phone lovers will likely buy several ringbacks -- perhaps even one for every caller they're likely to get rung up by -- vs. just one ringtone per handset, he says.

Consider: Your best friend might want you to hear a song by your idol Britney. But she might buy a new Avril Lavigne ringback, with the lyric "don't try to tell me what to do," for when her mom calls. And a caller who owes her cash might hear Liza Minelli's rendition of Money Money from the musical Cabaret.

"It's a chance to put your personality onto the device," says Martin Dunsby, vice-president for sales and operations at wireless consultancy InCode Telecom in San Diego. "It's exactly the kind of thing that the industry needs to do to get away from commoditization [where every company's wireless service is the same]. This is going to be huge for the industry."

"A GOOD CONCEPT." Such prospects are making service providers giddy. "We believe the service is very relevant to the youth segment," says Mark Fewell, senior director of business development and media for service provider Boost Mobile, a new, youth-oriented division of Nextel (NXTL) that now has more than a half-million subscribers. "The youth of today loves products and services that they can customize to demonstrate their own personality. We think it's a good concept and that it will be popular here."

Other service providers, including Sprint PCS, a subsidiary of Sprint (FON), and No. 1 U.S. wireless carrier Verizon Wireless, confirm that they're also considering offering the service. And analysts say every major U.S. carrier is already in the process of buying the gear that enables it.

Indeed, ringbacks have already proved a success elsewhere. Korea's No. 1 wireless provider, SK Telecom (SKM), was first to launch ringback tones in April, 2002. It now has more than 8 million ringback users out of its 30 million total subscribers, and SK is generating more than $9 million in revenue per month from the service. That's still small potatoes for SK, which has $7.25 billion in revenues, but it says ringback adoption is skyrocketing.

FEE STRUCTURES. Another Korean operator, Globe Telecom, has reported that 100,000 people signed up for its ringback service during the week of its launch in April, 2004. No wonder a Sprint PCS spokesperson says: "We are certainly watching this."

Says Roger Woziwodzki, director of wireless data products for Alltel (AT), which has 12 million wireless and wireline customers: "My opinion is, this service is translatable to the U.S. marketplace. We're bullish." Alltel, which is still researching the service and doesn't have a roll-out date, believes the ringbacks will appeal to a broad range of demographics and to both wireless and regular phone customers.

Cost doesn't seem to be slowing ringbacks in Asia, where carriers have been able to charge users $2 to $5 a month for a subscription to the service, plus, say, $1 per each new ringback soundtrack. U.S. carriers will likely follow a similar model, says Yankee Group's Zawel. Such fees should push the worldwide market for ringbacks from $148 million last year to $2.4 billion by 2008, according to Ovum.

PASSING THE CALL. That's good news for software and hardware equipment vendors, including France's Alcatel (ALA), U.S.-based U.S. Comverse Technology (CMVT) and NMS Communications (NMSS), Korea's WiderThan.com, and Ireland's Alatto Technologies. Depending on the number of subscribers that must be supported, hardware and software for a nationwide ringback rollout will cost from $2 million to $45 million, figures Hernan Giraldo, senior marketing manager for ringback tones for Alcatel in North America.

Here's how the technology works, which is quite unlike ringtones that you download onto your handset. Instead, a carrier installs special servers that contain the ringback tone recordings and communicate with the telecom network. Whenever you make a call, it gets passed through to a network switch that asks another device called a "content management server," which keeps track of the services each subscriber is signed up for, if the person you're calling has assigned a ringback to you. If the answer is yes, the switch asks the special ringback servers to send that song along. Moments later, you're listening to it until the friend you're calling answers the phone.

Under this setup, ringbacks can be heard on any kind of phone, wireless or landline -- while ringtone downloads work on only certain handsets, capable of downloading, storing, and playing music.

TOUGH ON PIRATES. For service providers that typically spend a few billion dollars a year on infrastructure improvements, the ringback setup cost is no more expensive than an ice cream is for the average person. And in Taiwan, carriers that deployed ringback gear from Alcatel have seen the service pay for itself within 2 to 4.5 months, says Hilary Mine, senior vice-president for marketing at Alcatel North America.

Universal's Hochgesang explains why music studios, too, love ringbacks. Because the software and hardware behind ringbacks reside on the carrier's network and the songs are never downloaded onto the phone, that reduces the possibility of piracy, he says. Hochgesang adds that Universal plans to begin trials of ringback tones with U.S. carriers this year.

Ringback tones, however, don't have to be songs: They can be jokes, clips of celebrity voices (real or impersonators), or even advertisements. At least a quarter of ringback revenue will come from corporations that want callers to listen to their company's jingle or message while waiting for the phone to be picked up, says Alatto co-founder Neil Flanagan. Of course, for some people that might be a level of torture that rivals automated phone-response systems.

NEXT: SOUNDTRACKS? The ringback tones could even pave the way to more elaborate mobile music services. In a few years, a caller might be able to order, with a touch of a button, a ringback tone he's listening to from someone else's line. Or he might choose to download the whole song or a video for that song onto his cell phone, says Flanagan. Mobile music downloads, already available Britain, Germany and Japan, could also make their way to the U.S. on a trial basis within the next year. But domestic wireless networks would need to be souped up to allow for faster downloading before such a service can work well, says Hochgesang.

Some companies, like Tellme Networks in Mountain View, Calif., are also developing "call soundtracks," a service that lets people listen to background music while talking on the phone. The music's volume can decline automatically when the callers are chatting and rise during pauses. Either party can also turn off the music during a call. The hardware and software needed to provide this service is similar to that needed to enable ringbacks, and Tellme is in discussions about implementing the service with several U.S. carriers, says co-founder Angus Davis.

Mobile users might one day be able to buy not just a ringtone and a ringback but a batch of products falling into a certain theme, say, an Eminem ringtone, an Eminem ringback, and an Eminem screensaver. The same user might also want to receive regular updates on the singer's tour schedule, CD release dates -- or even buy tickets to his concerts via a cell phone, says InCode Telecom's Dunsby. For carriers, such services -- and the additional phone use they'd bring -- could translate into extra cash.

With the first U.S. tests of the basic ringback tone service are still to come, there's no guarantee that all these new-revenue dreams will pan out. Indeed, other services, such as picture messaging over wireless phones, that have proved popular in Asia have not taken off in America. Chances are, though, cell phones here will playing lots of new tunes in the not-too-distant future. Kharif covers technology for BusinessWeek Online in Portland, Ore.